Tuesday, April 28, 2009 6:16:22 PM
Here's what I'm doing right now because I'm just confused as hell on what or how to trade. I am getting completely different ideas on what's going to happen.
If you take a step back and look at the chart of the SPX in detail this last rally eventhough feels impressive, it's actually been pretty weak. However, many stocks are up over 100% since March. It clearly feels right now that it wants to roll over. Plus you have the 'Sell in May and go Away' thing. Peter Eliades along with Hersh of the Stock Trader's Almanac are both saying we get a big selloff into the end of the year. Remeber the Jan effect? How goes Jan goes the end of year? Well, look at this last Jan. Hell, go look at the last couple Jan and how the years ended. Pretty amazing.
But the big question is, what's going to happen between now and then? Dapro is saying McClellen thinks a big summer rally. Moe Ansari seems to now be on board with that idea although I don't know what 'whopping' means. Another 25%+ from here? SPX 1000? 1100? Well, strictly fibo speaking that's about right for a 50% retracement.
And, that wouldn't even end the bear market at that level. A 38% to 50% retracement would only be a big bounce technically from the 666 low. This chart shows the larger fibo levels from high to low. I would think we should at least do a 38% retracement which we could be in the process of now to SPX 1014.
A break north of 875 means we're most likely headed that way now. I'm not sure about that XLB trade except for the fact that that sector is way way overbought and many are buying that same spread.
One thing I do know for sure though is that this Oct could be a monster trade in which I fully plan to buy many out of the money calls that I expect could 10x my money within a month in Nov or Dec.
That will kind of go against the Jan effect overall, but a sharp rally in that timeframe could still produce those gains.
Now Moe is standing by his idea that we still need to do a 5th wave move down. The idea is that new lows will be made simply for the fact that all bear markets (and bulls in reverse) always retest previous lows in order to confirm that as a low and there are no more sellers or weak longs washed out. That's the purpose of a retest. 2007 saw two SPX 1550+ hits before turning south, ie, a double top or retest to ensure there aren't anymore buyers.
That SPX 666 low will be tested again within 50 points.
So, what I'm doing personally is what I did with MRVL. Rolling a collar without the puts. I bought the TNA originally on Monday for $22.82. I then immediately sold the May $15 calls for $7.90. That's a basic covered call however with literally no spread other than a measily .08. That's not the trade. The trade is to keep the $15 calls short through expiration in the event the stock falls back there like it appears it wants to do. Will it? Who knows. But since it's so deep in the money, it's delta is nearly 1, or moves with the stock 1 for 1. When the stock runs to over the bollinger band on the daily, I sell it for a profit, let it fall back and then re-buy lower by .20 or more. I have 2000 shares and 20 short calls.
Each .20 I make $400. If the stock falls, I sell it even for a loss on the second or third or forth of whatever purchase, and then re-buy lower. So, if I buy at $22.82, then sell at $24, I make $1.18. Then I re-buy at $23.90 to protect the short call position.
To keep the trade going, I then say, sell at $23.75, then re-buy at $23.50. What just happened? I lost .15 on that trade, however I actually MADE money in that trade because I lowered my covered call basis by .25 on the buy lower. As the stock fell, so did the short calls. So eventhough it's a technical loss, it's actually a win.
Again, the idea here is to always be in the game and covered on each direction. If TNA falls to $15, that actually would be awesome because I can then cover the calls for a hugh profit, and either re-short a lower or higher strike call depending on what the Russell looks to be doing at the time.
Now you have to be a trader and understand the technicals on how to time intra-day peaks and troughs to get these trades correct. If you're wrong and you sell the stock and watch it run away from you while holding the short calls, you're totally screwed. BE CAREFULL doing this. You can try it with a much lower volitile stock like MSFT who's options trade like penny stocks. You'll have a much harder time making a lot of money with a small position, but you won't worry about getting screwed with a trade gone bad.
I'm doing this because I have no idea what the market is going to do here. If it falls next month like some are saying and falls good into say the 600s or low 700s, I'd use that as a major buy op because that could be the final leg down and McClellen could be right about a big summer rally before the 2nd wave larger pullback into Oct.
I think this Sep will be bigtime ugly as most mutual funds are going to be big dumpers of stocks. If Obama gets his budget passed with 0 Republican votes as will be the case and the economy starts to stink again, the politics will make investing impossible. If that happens the Dems are screwed in 2010.
I can't imagine much more upside here now with the $NASI and $NYSI so high.
So, sit back and wait.
If you take a step back and look at the chart of the SPX in detail this last rally eventhough feels impressive, it's actually been pretty weak. However, many stocks are up over 100% since March. It clearly feels right now that it wants to roll over. Plus you have the 'Sell in May and go Away' thing. Peter Eliades along with Hersh of the Stock Trader's Almanac are both saying we get a big selloff into the end of the year. Remeber the Jan effect? How goes Jan goes the end of year? Well, look at this last Jan. Hell, go look at the last couple Jan and how the years ended. Pretty amazing.
But the big question is, what's going to happen between now and then? Dapro is saying McClellen thinks a big summer rally. Moe Ansari seems to now be on board with that idea although I don't know what 'whopping' means. Another 25%+ from here? SPX 1000? 1100? Well, strictly fibo speaking that's about right for a 50% retracement.
And, that wouldn't even end the bear market at that level. A 38% to 50% retracement would only be a big bounce technically from the 666 low. This chart shows the larger fibo levels from high to low. I would think we should at least do a 38% retracement which we could be in the process of now to SPX 1014.
A break north of 875 means we're most likely headed that way now. I'm not sure about that XLB trade except for the fact that that sector is way way overbought and many are buying that same spread.
One thing I do know for sure though is that this Oct could be a monster trade in which I fully plan to buy many out of the money calls that I expect could 10x my money within a month in Nov or Dec.
That will kind of go against the Jan effect overall, but a sharp rally in that timeframe could still produce those gains.
Now Moe is standing by his idea that we still need to do a 5th wave move down. The idea is that new lows will be made simply for the fact that all bear markets (and bulls in reverse) always retest previous lows in order to confirm that as a low and there are no more sellers or weak longs washed out. That's the purpose of a retest. 2007 saw two SPX 1550+ hits before turning south, ie, a double top or retest to ensure there aren't anymore buyers.
That SPX 666 low will be tested again within 50 points.
So, what I'm doing personally is what I did with MRVL. Rolling a collar without the puts. I bought the TNA originally on Monday for $22.82. I then immediately sold the May $15 calls for $7.90. That's a basic covered call however with literally no spread other than a measily .08. That's not the trade. The trade is to keep the $15 calls short through expiration in the event the stock falls back there like it appears it wants to do. Will it? Who knows. But since it's so deep in the money, it's delta is nearly 1, or moves with the stock 1 for 1. When the stock runs to over the bollinger band on the daily, I sell it for a profit, let it fall back and then re-buy lower by .20 or more. I have 2000 shares and 20 short calls.
Each .20 I make $400. If the stock falls, I sell it even for a loss on the second or third or forth of whatever purchase, and then re-buy lower. So, if I buy at $22.82, then sell at $24, I make $1.18. Then I re-buy at $23.90 to protect the short call position.
To keep the trade going, I then say, sell at $23.75, then re-buy at $23.50. What just happened? I lost .15 on that trade, however I actually MADE money in that trade because I lowered my covered call basis by .25 on the buy lower. As the stock fell, so did the short calls. So eventhough it's a technical loss, it's actually a win.
Again, the idea here is to always be in the game and covered on each direction. If TNA falls to $15, that actually would be awesome because I can then cover the calls for a hugh profit, and either re-short a lower or higher strike call depending on what the Russell looks to be doing at the time.
Now you have to be a trader and understand the technicals on how to time intra-day peaks and troughs to get these trades correct. If you're wrong and you sell the stock and watch it run away from you while holding the short calls, you're totally screwed. BE CAREFULL doing this. You can try it with a much lower volitile stock like MSFT who's options trade like penny stocks. You'll have a much harder time making a lot of money with a small position, but you won't worry about getting screwed with a trade gone bad.
I'm doing this because I have no idea what the market is going to do here. If it falls next month like some are saying and falls good into say the 600s or low 700s, I'd use that as a major buy op because that could be the final leg down and McClellen could be right about a big summer rally before the 2nd wave larger pullback into Oct.
I think this Sep will be bigtime ugly as most mutual funds are going to be big dumpers of stocks. If Obama gets his budget passed with 0 Republican votes as will be the case and the economy starts to stink again, the politics will make investing impossible. If that happens the Dems are screwed in 2010.
I can't imagine much more upside here now with the $NASI and $NYSI so high.
So, sit back and wait.
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